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Weak Weekly Wrap-Up – Charting Uncertain Waters

I’m just doing a quick wrap-up this week because, surprisingly, it MIGHT be time for a new Buy List!

I had said to Members on Cinco de Mayo, in our 5% Rule Review, that if we broke below 1,155 we would retrace all the way to 1,100 with our 5% Rule resistance points around 1,100 at 1,155, 1,114, 1,100, 1,073 and 1,045.   We actually spiked as low as 1,066 on Thursday but finished the week at a very sad 1,110 as we watched for that "weak bounce" zone to be broken all day.  This does not bode technically well for the markets next week but I told Members we would have to give the markets a pass for the day.  Based on the uncertainty of the weekend, we can’t expect a lot of capital commitments ahead of the EU decision.  After all, we’re in cash – why shouldn’t other smart funds be too?

When I predicted we’d hit 1,000 on Wednesday, I did not think it would be on Thursday!  The markets are now negative for the year and the S&P has spiked almost to the Feb low of 1,044 (and our lowest close was 1,056).  That’s right, these 5% Rule numbers are the SAME ones we used back then and it’s the same series we used to measure our winter run at the end of last year.  We expect a bounce here, hopefully at least a test of 1,155 on a relief rally if Greece is "fixed" yet again on Monday but we’re not going to be too impressed until we’re over that line. 

Still that means it’s time to at least lay out a new Watch List, which is the prelude to a Buy List – giving us a list of stocks we’d like to get into at lower prices.  Our last Member Watch List was back in December and by Feb 6th we had our famous Buy List, which we triggered at Dow 10,058 for a very successful run through March 18th ("Bye Bye Buy List!"), when we closed 2/3 of the positions and we have since cashed out the rest as I got more and more worried about the rally, finally calling for all cash last week.  

Speaking of last week, for those of you who say I don’t pick enough straight stocks – I listed 33 short trade ideas from my unofficial "Sell Listlast Friday (4/30) when the Dow was way up at 11,167 (clack, clack, clack) and I said:

Attention ladies and gentlemen:

The stock market will soon be leaving the station, please secure all personal items, pull down the safety bar (our Disaster Hedges) and keep all body parts inside ride at all times.  Well you know you can follow all of the safety instructions and STILL get smacked in the face with a black swan (like our friend Fabio, pictured here) which is why we elected to get back to cash ahead of this report.  The markets were just too insane this week and who the heck knows if Europe will still be a Union on Monday or what the GDP number is going to be (but I do think it’s a miss).

Since our biggest weekend fear is financial panic in Europe, our cash US dollars will become more valuable in a crisis and if the market drops, all the better as we can ride back in and do some bargain hunting. 

It remains to be seen whether we will firm up here, near the year’s lows, or if this is just a stop on the way to a retest of the zones around 8,650 on the Dow and 880 on the S&P, which is the "fair minimum value" of the Dow and S&P I determined back in our last crisis.  It all depends on what happens in Europe as they are on the brink of a liquidity crisis – again – but this time it may not be so easy to paper it over with FREE MONEY as we’re starting from a much weaker global position and the mythology of China’s infinite growth saving the world is beginning to show some cracks even as Japan begins to melt down and our own Banksters all seem to be just one step ahead of the next investigation.

I brought all this up in that Friday’s post and it isn’t all going away just because we hit my target at S&P 1,100 and tested our Dow 10,200 goal as well.  As we now cashed out of our shorts too, it would be nice to say we don’t give a damn but I think we’d be happier with a panic drop at this point to get some REALLY good entries (sorry bulls) but we will be looking for some bargains along the way (see yesterday’s post with our "Buy/Write" strategy).  While we got out of our shorts on Thursday, we were not in much of a buying mood on Friday but we’ll be watching our sell list group for signs of life:

Bang, pow, zipf!  Holy hemorrhage, Batman, these stocks are melting like Mr. Freeze’s base in Eyjafjallajokull!  Hey it’s the weekend, I’m allowed at least 5 pop culture references…  Usually we don’t bother shorting stocks because they don’t usually move like this.  Obviously, the puts on these stocks made ridiculous amounts of money but, as I said in last week’s Wrap-Up, when we buy a naked put OF COURSE we are short on a stock and, when we buy a naked call – OF COURSE we are long on a stock…

These stocks are not stocks we usually short, this was simply a list of power stocks that had simply gotten way too ahead of themselves and made for compelling shorting opportunities that week, when I was actually looking for things to buy.  But, as I said to our Members: "It was easier to construct a Sell List than our usual Buy List for this market."  BIDU was a key short for us – why mess around with the little ones when BIDU was so obviously overpriced.  As I said in our cash-out post on 4/29: "Cash doesn’t mean sitting on our hands, cash means flexible.  Cash means being able to grab opportunities like the chance to sell BIDU calls to suckers this morning and the chance to short oil at $85 again."

Oil is now $75 and the futures contracts pay $10 per penny for being on the right side.  A single short futures contract at $85 is now worth $10,000, not a bad return for 7 trading days!  Of course also we shorted USO calls our morning Member Alert, where I said: "Oil can also be shorted by selling USO $41 calls for .95 as that’s the $85 line on oil that we don’t think will hold.

Well this was just like shooting fish in a barrel wasn’t it?  18 for 18 is pretty good so far.  To be fair, the Dow is down 7% since that Friday so let’s say my only winners were ones that did better than that.  Keep in mind these are all stocks I was looking at when looking for things to buy so, for the most part, we’re actually kind of interested in them as they get cheaper.  Right now I’m taking notes of who went down LESS than the Dow and the S&P and, especially the ETFs they belong in (all part of our usual analysis) and we also like ones like SHOO and FAST above who, so far, are respecting their 50 dma (red line) after a nice pullback. 

As you can see from the above set, our indexes had no respect at all for their 50 dmas and the Russell still has a long way to go before testing the February lows.  If they hold that 650 line, which was their breakout level in March, then we have a positive signal next week but, if they blow it, the other indexes are likely to blow their 2010 lows and we’ll have to be looking as far down as another 20%, back to our non-spike lows.  Cash is still king until we see these supports retaken but, of course, we know how to buy stocks at 20% discounts so we can begin scaling in earlier than the average investor, giving us a huge advantage when the market is in panic mode… 

Man am I good (pat-pat)!  Anyone can go with the flow but how many people are willing to tell you a stock that does nothing but go up is going to fail the day before it fails?  With options, timing like that is key because we get MUCH better entry prices on short calls and long puts when we initiate out bets while the momentum is going against us.  It’s like trying to catch a perfect wave though, very tricky and that’s why we always scale in carefully and we do love our hedges.  We were already rolling a bunch of short positions we entered a little too early in April, where we had to use the old Rawhide Strategy (rollin’, rollin’, rollin’) to stay on top of the surging wave of buyers.  An example of that strategy was in an 11:20 comment to Members and I’ll print my whole comment from chat from that morning (11:20) as it’s educational:

Phil

Oil is the only thing taking a break – down to $85.60. 

Well, this is a nice surprise, TOS moved my EDZ short puts for free but not a small position (5) I had on FAZ so I guess they automatically adjusted larger positions – very nice!

AMZN/John – Keep your head in the game, AMZN is only at $146 and that’s up 25% since March 1st – something some would consider extremely ridiculous.  They had great earnings in Jan and only made it to $132 and then sold back to $115 and Nov earnings also took them to about $145 before a spectacular failure.  It’s kind of like boxing where you have to learn to take a punch and move on because you WILL take punches – it’s part of the game.  So there is no reason to do anything with the May $145s at $8.90 and 85% premium.  The Apr $140s are $6.50 and you can roll those to the May $150s evenish so that’s the position.  If you want to get conservative into earnings you can sell 1/2 of your total position in May $135 puts for $3.75 as that will help pay for a roll-up if AMZN heads higher but if your gut says not to sell $135 puts – I’d go with that as you can roll the May $145s up to the Oct $160s (now $9.30) and THEN sell Oct $145 puts (now $14.60), which sucks for time but you get my point – we call it the Rawhide strategy!

BIDU/RMM – There is a legitimate reason for BIDU to go higher.  GOOG had 1/3 of the business in China and BIDU 60% and now GOOG is gone so BIDU can, in theory go up 50% ($750) and maybe even more as they now have a monopoly.  I thought MSFT or Yahoo (Ali Babba) would get more aggressive but they haven’t and more and more business is defaulting to BIDU but it won’t show up in revenues fast enough to justify this run most likely but after an earnings dump, then they will be a solid buy. 

MBI/Micro – I like it a lot.  You could be a little safer and sell the Aug $8 calls for $1.70 and the $7 puts for .90 for a net $5.75/6.38, which is still a very nice 39% if called away at $8 with a nice 23% downside cushion in a non-greedy play.

TZA May $6 calls at .42 is my bearish play of the moment



 

We get a lot of questions about what subscribers get as Members and this comment is a good example of it.  It’s a mix of me and other clever people answering Member questions and coming up with trade ideas.  If I bold a trade idea, even if I’m discussing it with someone else, that lets Members know I think it’s a generally good idea (as opposed to a strategy I’m discussing that’s specific to someone’s question).   As you can see, we were pretty bearish even then and my comment to John is a great explanation of the the logic of how we ride out a move against us (AMZN is now $125 so that all worked out quite nicely!). 

EDZ and FAZ are trades we were already in and, of course, phenomenal winners while new trade MBI is still well over $8 ($8.73) and we’re good on them all the way down to $7 while the May $6 TZA calls are now $1.68, up 300% in 3 weeks.  So, not bad for 6 paragraphs, right?  Also notice, at the time, I was bullish on BIDU so my position the day after earnings was one of my classic "flip flops" I get accused of by Cramer and Co but the reality is there’s my target right there.  Is it really "flip flopping" to go short at my topside target? 

Getting back to our list, another cool play we made on earnings was WYNN, where I had these two ideas on the 29th in Member Chat:

WYNN/Hannah – Well that is a lot of money but wouldn’t you rather wait for $100?  I guess if you are impatient you can sell the $95 calls for $3.65 and those can roll to the June $100s ($3.35) and those to Sept $110s ($4.15).  If you want to do a bear spread, you can sell the June $105 calls for $2.05 and take the $100/95 bear put spread for $3.20 so net $1.15 on the $5 spread but, opposite of our usual plays, you have to REALLY want to be short on WYNN at net $103.85 at June expiration.

You can see WYNN dropped like a rock so the June $95 calls should expire worthless (currently $1.40 up 61%) and the spread of the short June $105s and the $100/95 bear put spread is now net $3.60, up 320% - so you can see why I liked that trade better…  Wynn is a great example of what I mean by getting great prices when the move is against you as we the "incredible" (as in not credible) rally gave us great prices on the calls we sold ahead of earnings as well as a cheap entry on the puts.  That’s the difference between Fundamental and Technical analysis – we DON’T believe that you simply follow patterns and then adjust AFTER the market turns against you – we prefer to stay ahead of the curve and our biggest problem is usually that we are too far ahead – which is why we have our Rawhide Plays – fundamentals do tend to win out in the end.

So the Short List was perfect (it ends at OIH) but I blew 2 by trying to get bullish with SPWRA and TBT and we also had MON and VLO as upside choices and they are down as well but, of course, we didn’t stick around in the bull plays to find out other than our long-term, well-hedged positions – which we’re very happy to add to as we get lower.  As to the short side, we cashed out Thursday – that was plenty for us and maybe we’ll miss a spike up on Monday or maybe we’ll miss a spike down but I know we’ll sleep a lot better on Sunday than most of the other Hedge Fund managers I know…

Quick Week in Review

In "GDWheee Friday – Could be a Wild Ride!" I said something seemed fishy in the GDP report, keying on the Real Disposable income numbers as a negative sign and I closed with: "Like last Friday, we’re going to let the markets run but unlike last Friday, I’m glad we didn’t wait until the weekend to decide to get out.  We’ll see if I was right."  We did fall off the initial excitement of the GDP report but that didn’t stop my "friendbuddypal" Jim Cramer from telling the sheeple:

I suspect on a better unemployment number) you’ll see a substantial rally in the markets and most importantly, the banks. Yup, the very banks that were taken down so wrongly today due to ill-conceived chatter stemming from financial regulatory reform… 

Do we have to wait for this number to be reported on Friday to buy stocks? Absolutely not. Not after the shellacking we took today.

Cramer said he thinks the bank stocks would rally of their own accord.

However, if I am right and the household number shows a big downtick in unemployment, and if a consensus on financial reform begins to develop next week, as I believe it will, you could have the beginning of a monster rally in the financials.

I don’t know if Fast Money’s advice was as awful as Cramer’s because they pulled the first half of the show off the web site but I’m sure their advice was brilliant.  I detailed our plays in last week’s Wrap-Up so I won’t rehash it here although we do (purposely) leave out details of many of our member spreads to protect our positions.  Now that we’re done with them, I can tell you we had sold the EUO Aug $20 puts, which made 50% already, the EUO Aug $21/25 bull call spread at $1 that doubled, along with our ABX and QID plays that are looking very, very good indeed.  

Optrader and I updated "Smart Virtual Portfolio Management I – The $10,000 Virtual Portfolio" last Saturday and this Saturday we need to finish up the $100,000 Virtual Portfolio and then the $1M Virtual Portfolio for our Members and, of course, I have a Watch List to prepare so I’ll just summarize the rest of the week quickly so I can get to work:

Monday Munificence – Greece "Fixed" for "Only" $146Bn, Who’s Next?

I made my case for skipping over the European dominoes, right to the house land of the rising sun – Japan, whose 200% debt to GDP ratio is the most horrible economic thing to be ignored by the MSM since $85 oil (back in 2007, when I shouted myself horse for a year saying it would end in disaster and no one believed me – until it did). 

We had the Times Square bomber over the weekend and I was dumbfounded that it was being ignored by the markets.  I not only reiterated my cash call but I suggested stocking up on guns and ammo as a hedge against the collapse that lies ahead.  As to the markets, my comment was:

 At PSW, we often target stocks that are "priced to perfection" for our short positions and my primary objection to the run-up to S&P 1,200 is that 1,200 is, in itself, priced to perfection and the global economy still seems far from perfect to me as well as the obvious possibility of another 9/11 or some other catastrophe, like an oil spill wiping out the entire Gulf of Mexico’s water economy.

Later on in chat (at 12:09), with the markets heading up to day’s highs, I said to Members:

Woops, Euro plopped to $1.317 into EU close.  Pound holding $1.524 and dollar is at 94.5 Yen so Nikkei futures are happy as long as that scam continues.   Copper is $3.28, a 2% drop for the day so I think you are NUTS to be bullish right now – JMHO….

At 3:50, we were closing at the day’s highs and I said:

Notice, by the way, that all we are doing today is making lower highs than last week.  This rally means nothing but setting a downtrend if we don’t pop over those levels – more on that when I get a chance to run my numbers.

Some of those numbers and charts and graphs come at 7:14 (we chat 24/7) and it’s too long to list here but here’s a link to an infographic you MUST see that we were discussing that night as one of the reasons we’re in a LOT more trouble than our government and the MSM would have you believe.  Speaking of the MSM – thank goodness our man Cramer was on the case – telling us that the move to make after a 5% jump in the Financials that day was….  To buy MORE Financials.  Cramer criticizes we who dare to criticize him by suggesting people be a little more cautious at the top of a 200% run.  Silly us, right?

Stock Market Physcis

Tumultuous Tuesday – Funds Tend to Short Ten-Year Treasuries

Probably our biggest mistake of the week was not considering the flip side of this indicator – that there could be a huge squeeze on TBills that sends our precious  TBT back near it’s lows.  That’s exactly what happened but we’re long-term buyers of TBT and we just took advantage of the deals – this is one we do not flip or flop on…  I pointed out the fallacy of the Auto numbers and discussed how I still liked shorting oil (which had topped at $87) but that gold had gotten too dangerous for naked shorts.  I put up charts on the major indexs and talked about how ridiculous the performance of US equities was compared to the global markets saying

So it is a truly gravity defying performance put on by our US equities as they float high above – NOT JUST THE 50 DMA BUT, ladies and gentlemen, for perhaps the last time on the World stage in 2010 – the Flying US Indices will attempt to float above the 20 Day Moving Average in order to LIFT the other Global markets back to the very top of Wall Street’s big top.  Come and see the show!  …Did I mention copper and our relentless shorting of FCX yesterday?  Copper hit $3.25 this morning and FCX is looking at $72.50 – look out below if they break lower!

That afternon, my 2:35 comment to members was:  I think we may be at the beginning of a major correction.  If the EU starts unraveling, anything could happen.  Don’t forget our meltdown really started with troubles in Iceland and Ireland even though it turns out that our local issues were 100 times worse than what actually triggered the global sell-off - How is it different now?

3:46:  Finishing near day’s lows not at all bullish.   Means we’re very likely in at least a 5% correction with the normal follow-through 1.5%, .75% and then dribbling into the line (assuming we decelerate and 5% holds).   

Cramer disagreed with me yet again.  Telling viewers: "The shorts and panicked sellers have a “buffet of horribles” to choose from to try to knock down this market. But that’s no reason to sell and run."  This was AFTER he had a chance to read my totally opposite take in my post "5% Rules!  How Can We Be So Right?" where I made the 1,100 call for the S&P I mentioned above.   

Wednesday Worries – Greece Closed & Japan Close to the Edge

As I had said about the last Thursday’s "Pain in Spain" article – never ague with articles whose titles are plays on popular songs.  I suppose there aren’t enough Yes fans around these days or maybe there never were but one of my college roommates used to play them constantly and it’s all still bouncing around my head to this day…  Where were we?  Oh yes, so the riots in Greece were starting to bother me and I led off my commentary with this illustrative comedy sketch:

Lord Blankfein, the peasants are revolting!  Lloyd: "I know, they stink on ice."

I quickly got deadly serious on the subject as it’s one I’ve been gravely concerned about for years and, in fact, has been my overriding economic theme which I laid out way back in December with: "2010 Outlook – A Tale of Two Economies."  If you want to know what’s going on in the World now – just read what I wrote then.  As I said in Wednesday’s post:

It’s one thing to have these egg-headed discussions about austerity and cutbacks and for the EU and the IMF to get together and tell the Greek people it’s time to pay their debts but it’s quite another thing to actually get it past the people who’s lives these measures will affect.  Imagine if the IMF told Americans that we needed to cut government spending by $1.5Tn (the equivalent) and that wages would be frozen and retirement will be raised from 65 to 70 effective immediately so hopefully you die at work and save us the Social Security payments….  We have Tea Party protests now!  …Putting the global cherry on top of our EDZ and EUO hedges is State Street Global, who put an "underweight" position on the largest emerging markets including China and Brazil on concern shares are expensive relative to smaller developing nations as economic growth slows.

Of course, EDZ has been a main hedge of ours for ages and EUO I mentioned we entered last week but, even if you just took that advice in the monring you could have caught a 20% run on EDZ within 30 hours as well as a 4% move in EUO over the same time frame.  WHO SAYS I NEVER PICK STOCKS?!?  Despite the upbeat looking morning I closed the post with:

1,157 on the S&P, right where I said we’d be at the conclusion of our 5% Rule Review!  I also said "not holding that is going to be nasty" so look sharp today as we exepect at least a 1% bounce off that line.  Anything less will be LAME!  Of course we are in disaster hedge heaven because THIS IS A DISASTER!  We’ll be looking at layers to go lower and also as a way to lighen up because, the same way we took 300% profits off the table on the way up, we need to do the same on the way down. 

It turns out the long-term disaster hedges could NOT be taken off the table because the rapidly rising VIX made it difficult for us to buy back calls and puts we sold to cover but, fortunately, I knew that mignt happen and suggested 2 shorter, more aggressive hedges in DSD and QID in my 9:50 Alert to Members:

Phil
Wheee doggies, what a move! 

Those bottoms I mentioned yesterday are: Dow 10,800, S&P 1,170, Nas 2,400, NYSE 7,430 and Russell 690 – I’m really surprised we’re here in 24 hours and I sure hope the Dow and RUT hold it together or this will go beyond ugly!  3 of 5 below is a terrible signal already…

Certainly this is not time for bottom fishing so we need to get over yesterday’s afternoon highs before we even think about buying something – no matter how cheap it looks! 

Spain’s 10-year spread just hit a new all-time high compared to Germany so that’s a crisis that’s not going away today. 

SDS is at $31.25 and you can buy the June $29/33 bull call spread for $1.60 and sell and sell the $29 puts for .80 for net .80 on the $3 spread and SDS bottomed out at $28.37 so you are really betting that the S&P won’t flip around and fly back over 1,200 so fast you can’t get out of the spread.  Meanwhile, if we keep going lower, it’s a nice 275% gain. 

This is the kind of play you want to roll 1/2 of your profits into if your original Disaster Hedges are already way up.  Then you put a 50% stop on the new set and you lock in 75% of your current profits while keeping another 68% upside from your original position.

Another big hedge is QID June $15/17 bull call spread at $1.05, selling the $15 puts (lower than QIDs lows) for .50+ (now .30) if QID ticks lower but otherwise, gaining .95 off $1.05 in a month is just fine! 

Remember these are ROLLS so we can take out WINNING short plays OFF THE TABLE – I do not like these as new plays unless we fail to bounce

My favorite upside play at the moment is ERX June $37/41 bull call spread at $2, selling May $30 puts for .60 for net $1.40 on the $4 spread (180% upside) and June puts can be sold to further reduce the basis.

SDS $29 puts are still .80 but $4.97 out of the money now.  The June $29/33 spread is now $2.20, up 37% but 100% in the money towards its 275% potential gain.  QID June $15 puts held .25 (up 18%) and the June $15/17 spread is $1.35 for another 28% gain with QID at $18.50 we’re well on our way to goal.  ERY went completely the wrong way (that will teach me to be bullish on oil!) and the June $37/41 is down to $1.30 (down 33%) and the May $30 puts are now $2.85 (down 103%) even though ERX is still at $33.82 so I still like them as a naked sell.  Again, convictions are the big difference in fundamental trading.  One of the reason we do these reviews is so that we can go back in time and observe the ups and downs and adjustments of our trades over time. 

Cramer explained to us that the market was "like a roller coaster" and exhibiting bi-polar behavior.  See if you can figure out if he’s saying to get to cash or ride things out.  It’s great commentary because he can quote himself no matter which way things go.  But, according to his own web site for the day:  "Cramer’s bottom line is this: Investors don’t need to constantly obsess about Europe’s debt problems. They’re better off using these declines to buy stocks with great long-term secular growth stores or those that just delivered the best earnings beats of the season."  Cramer’s disdain for "obsessing over Europe" (or gold or oil or China – yes, he said this!) and carnival-like barking for trying to keep people "in the game" and pulling cash off the line led me to create the following montage response (with a soundtrack you can click on too):  We Won’t Get Fooled Again?

Foolish Thursday – Through the Looking Glass

Down the rabbit hole we went on Thursday!  I said about the photo post that morning "That pretty much sums up my attitude on the markets right now – we cashed out at the top and, until we see some pretty DEFINITIVE proof that it was not a top, we’ll be sticking to mainly cash, thank you very much!  While Alice’s Red Queen may have said "Sometimes I’ve believed as many as six impossible things before breakfast," we’re having a little trouble swallowing what’s being dished out by our government and the MSM."

I cited Richard Davis’s article on the lagging GDP as well as articles in our Phil’s Favorites section as examples of thing people need to read before deciding to go bottom fishing.  As I said that morning:

While it’s tempting to try to bottom fish on the dips (and boy have the little maze rats been trained to buy on the dips this past year!) I keep having to point out to Members that we don’t actually KNOW where the bottom is.  I wrote up our major watch levels in our 5% Rule Post article (and there is more discussion in it in chat on that post).  To simplify a long discussion, our key watch levels on the S&P are going to be 1,176 to the upside and 1,155 to the downside.  If we can’t hold 1,155 then the markets are in for a World of hurt and we’ll be looking for a move all the way down to 1,100 at least.

Whatever you do, DO NOT SUBSCRIBE TO PSW, knowing this sort of thing a day before it happens will make people think you are one of those people who know what’s happening or, even worse, have money - a very dangerous position to be in "when they kick in your front door."  Not to get off topic but I was involved in what I thought was a serious conference call regarding possible solutions to the Greek crisis when one of the participants said: "What they need to do is find the 10 biggest tax cheats in the country, drag them into the middle of downtown Athens and shoot them on TV."  This is, unfortunately, not that different from some of the rhetoric at rallies in this country (or on Fox). 

The day’s article is a must read if you want to get a handle on how screwed up Europe is and, as of noon on Saturday, it isn’t "fixed" yet so despite Cramer’s insistence that we’re worrying too much about Europe – we may have a lot to worry about on Monday if this thing isn’t resolved!  In the morning post, I pointed out how insane (and fake) the Hang Seng looked in the afternoon and I concluded: "I would love to tell you there’s a great way to play this but there’s a reason we went to cash.  As the great tradebot, WHOPPER once said: "Sometimes the only winning move is not to play."

We did end up playing as we bottom fished and cashed in our shorts during the madness of the day.  Cramer said that too was a mistake we’re making and that "Until we suffer a truly vicious decline, a legitimate one that takes us under Dow 10,000 for real, this market is probably too volatile for most individual investors."  Cramer also tells us that "Dow drop was caused by a trader who tried to sell $15 billion worth of stock instead of the $15 million he’d intended."  Wow, Cramer must think we are real idiots….

Fat Finger Friday – Business as Usual, Really

Hey SEC, here’s an idea – while you are spending 3 months determining what actually caused the market drop, why not send out a note telling MSM whores like Cramer and Co. that you won’t put up with them misleading people with their "inside" information that the sell-off was caused by a mistake and that the market isn’t really that fragile.  That in itself can be more damaging to people’s financial health than the original drop – sending the suckers into the dip-buying pool while the sharks may still be in the water.  Of course, when you are one of the sharks, or the Mayor of Amityville, I guess that’s just what you do want to do, right?

Of course we have a huge advantage over the average investor as we know "How to Buy Stocks For a 15-20% Discount" so we can make our entries now (INITIAL ENTRIES) and we’re protected all the way down to about 8,200 – which is the level we want to be buying heavily at anyway.  So a simple 1/4x entry here with 20% downside protection and the plan to double up if we drop (2/4x) and then DD again to a full 4/4x position if we drop another 20% to 7,000 is not a bad plan for making a few entries on stocks that are a great deal.  I put up and example of a play on MEE in the morning post and suggested similar for RIG.   

Do keep in mind that that is what I’m talking about when I’m suggesting entries in this chop.  I’m talking about committing 1.25% (1/4 of 5%) to several new entries on stocks that we consider great deals.  We don’t know at all whether it’s a good time to buy yet, only that we will regret it if we don’t and there is some coordinated action by the G7 to pump up the markets on Monday (very possible).  As I said in Friday’s post:

Meanwhile, nothing is better and nothing is fixed and don’t believe a word they say about "fat fingers" causing the crash.  This crash was caused because a little boy finally pointed out that this Emperor of a rally actually has not clothes and all the MSM analysts who have been fawning over the magnificence of the rally are once again revealed to be nothing but fools, yet no greater fools than those who follow them

Meanwhile, I have a Buy List to work on.  Cramer has his minions going to cash, selling all the stocks he just told them to BUYBUYBUY earlier in the week.  In fact, Cramer says "Don’t Buy Till Dow 9,000" and that suits us just fine as we (and Cramer’s hedge fund buddies) will have our pick of the litter if we decide it is really safe to go back in the water.  More on this as the weekend newsflow develops.  Call me crazy, but I do like to keep up with what’s going on around the world

 


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  1. Phil,
     
    Thanks for some steady advice in an exciting week. 


  2. Trying to catch up on posts from the past couple of days.
    As one of the resident non-believers in the low volume HAL-9000-GS run up over the past year, the action this week, particularly on (was it Wed or Thurs ??) caught everyone, even me, with disbelief as almost every bear had been pummelled into submission.
     
    I may not agree w/ Phil on politics, but I 100% agree with this from yesterday:
     
    "This market didn’t just sell off because of a trading mistake.  Whatever really happened, it happened because there were no real buyers when the selling came – something I have been warning would happen during the last 3 months of low-volume run-ups. "
     
    What happened was proof that this rally was wildly overdone and phony, and that there truly is NO SUPPORT in this market.  Once the stampede gets going, you see what happens to price.
     
    Where we go from here ?   I don’t know; I will be inclined to sell rallies and take advantage of these crazy option premiums on both the call and put sides.
     
    For example, I was looking at AAPL put premiums that have blown completely out.  Pick an entry, say Jan 160, and see what you can sell some puts for.  That’s what i hope to be doing come Monday.
     
    Even the REITs are starting to gve it up; and now that the GGP saga seems to be ending; I think that + the market could see a very steep correction in that space.


  3. Hi, Cap & Phil,
    I agree with you that there were no real buyers.  But I am more intrigued by the 700-point recovery WITHIN MINUTES after the 1000-point avalanche.  It’s easy to cause an avalanche.  It’s hard to save one.  It’s even harder to save one within minutes.  So, who’s the hero that saved us?  Or how?  Don’t you think that’s a more interesting question?
     
    It can’t be the retail investors, not even the sophisticated members at PSW.  I’ll bet that no one on this board were aware of ACN or PM or PG dropping to those crazy low prices during the frenzy.  Even if you knew, by the time you put together an order to buy, it was all over.  Your fat fingers just can’t click and type that fast.
     
    Aha!  I know what!  (I am thinking aloud as I am typing this post.)  I’ll bet the trade-bots were the hero!  They caused the avalanche and then heroically "saved" the world!  And made yet more $$$ by buying/selling ACN, PM, and PG!


  4. According to this ZH post, big activity by JPM, UBS, and MS during the timeframe of the "glitch". 
    http://www.zerohedge.com/article/here-who-traded-what-and-how-much-yesterday
    Kind of makes you wonder about the true nature of JPM especially in light of recent comments by Jim Rogers that he is shorting a major financial firm that everyone thinks is sound:
    http://jessescrossroadscafe.blogspot.com/2010/05/survey-says-western-institution-jim.html 


  5. I listened to 15 minutes from S&P pits on zero hedge.  The market was in total freefall until JPM (de facto agent of NY Fed imho) started buying EVERYTHING in sight.  PPT (aka  "Working Group") team at its finest. 
    Same way there was 300 point rally yesterday during Obama’s speech.  But they can not spark rally.  No retail demand.  There is alot of free air btw here and 8900.  Look out below.
    As for Jim Rogers, either JPM or GS.


  6. Phil,
     
    I’m short GILD May $45 puts sold at $1.50 (now $6.50).
    The gap down from the last earnings and the subsequent market correction has now transformed it into a core long term holding… :-)
     
    What is the best way to adjust, without adding more margin to the trade?
    I suppose rolling to the Aug $45 puts for $7.25 or the Jan $45 puts for $8.55 are the simplest ways, but they have relatively low premium because of the deep-in-the-money strikes. Of course, the presumption is that it will get to $45 again…
     
    In general are there other ways to work this more aggressively, especially given the currently high short term volatility?


  7. I logged on to my Fidelity account to see where everything settled out for the week. A large warning was flashed on the screen identifying the concern they have for the spike down and then up on Thursday. They stated the exchanges are investigating the cause, and have stated the trades made between 2: 40 and 3:00 may be nullified.  In other words, it is not yet settled. My feeling is this whole activity was caused by a combination of computer glitches, and stop losses as well as order to buy that were sitting in a the master computer files that talk to each other. Accident – yes…. not, I believe intentional malfeasance.


  8. Phil and Cap…. you guys are accurate – Those endless days uf up markets with very little volume was a signal the correction was soon to occur. It was a situation looking for the spark to set it in motion. Any number of circumstances could have started this correction, as the sellers were there, but  NO BUYERS!  Phil… this is why we follow you, and the "P" in PSW is "Phil!". Thanks for saving my a$$ last week.


  9. Phil: I am always amazed about the volume of information you can process. You have a good brain man.
    Many say last week was exciting, I say it was terrible, I just cannot act fast enough.
     
    When It comes to spreads, all kinds, I do understand the setup, namely buying/selling  options and cover so there is a NET cost
    lower than buying only. I find myself too often messing around with those spreads.
    What all options gurus always explain is the setup, what they NEVER explain is the management of the spreads with time.
    Could you do this with an example: explain what one does or not does as the spread exists  Please.


  10. Phil or anyone else know if there’s anywhere to find historical option bid-asks for a day? I coulnd’t unload IYR puts during the crash Thursday as the bid was virtually zero and my limit order to sell didn’t fill. After reading an article Denninger posted regarding the NBBO I was trying to figure out if I could see what bids were available/filled during that time, and if I could bring this to Etrade and contest it. Seems like a very long shot to me as I know the spreads on most options blew out, but it’s a lot of money so I was considering raising some hell…Anyone have any similar experiences or thoughts? Thanks.


  11. To anyone who might be interested, there is a fascinating discussion going on at the Kid Dynamite blog between professional traders and brokers about what might have caused the price anomaly in the "Crash of 2:45" in a series of posts:
    http://fridayinvegas.blogspot.com/2010/05/aftermath-remedies-dont-lose-faith-in.html
    The consensus is that is was most likely a result of a sudden surge of selling that triggered a cascade of stop losses, and this resulted in a wave of volume that caused a large latency in activity between different market places — especially between the NYSE and ECN’s due to the LRP policy at the NYSE.   This latency caused the HFT’s to stop placing bids temporarily.
    But the most important lesson to learn from this experience, to quote Kid Dynamite is:
    "Don’t lose faith in the market – lose faith in market orders!"


  12. Pharm – I noticed some new information about ARNA (atleast to me). TheStreet’s Sr Biotech Analyst notes that FDA has setup another meeting in September that might review ARNA. Also, he seems to have concerns around the fact that FDA has not setup an advisory panel for ARNA’s drug yet.  
    Thoughts?
    http://twitter.com/adamfeuerstein/status/13549641917


  13. One week ago Jim Cramer was the most bullish idiot I have ever seen…… everything was BUY-BUY-BUY, even the junk that was clearly overpriced. The day after the market drop he is saying SEL-SEL-SEL, and don’t invest a dime until the Dow reaches 9000. He is really the perfect forecaster of weather one weak after the fact. I really find it difficult to understand how a guy can be so wrong consistently, and still have an audience. Throwing darts is a more exact science than the theories he follows. If you wait until 9000, you will have missed the train, and you will once again be suffering a lost opportunity. Oh well…. at least the guy makes you laugh! (or cry, if you follow his advice)


  14. ARNA/Trad – the FDA usually announces only 2-3 mo increments for its advisory committees (I will double check this).  Second, if there is such a meeting, I am sure that it would be considered a material event in the case of ARNA and OREX, so they would announce it.  Adam F. on thestreet is a good source of dates and info, but many times I question his judgment on the science.  I will ask around a few friends at ARNA.


  15. Phil,
    My Dad, who is a passive investor, has been looking at charts of F at a dollar, for example, and wishing he would have put 100K in when it was way down and would "have a million now." So now he is asking me if I know of a way to turn 100K into a million "that is risky but probably would work?"  I’ve seen you give out longshot ideas like this before so what do you think?


  16. May 4, 1970 …
     
    40-Year-Old Audio Recording Reveals Ohio National Guardsmen Were Ordered to Fire at Kent State
    http://www.clevelandleader.com/node/13799



  17. Thanks diamond, I was a freshman in a PA college then. Brings back memories…


  18. Phil
    I would like put together a spread on TBT for tomorrow’s market. I believe the EU will in someway provide monitary assistance for Greece, and the debt issue will subside.  I also believe the problems in Spain are subsiding through an increase in GDP. The "crisis" flight to safety mind set will subside somewhat over the next few weeks in the Eurozone, thereby diminishing demand for treasuries here in the US, so I believe it is a good time to take some new positions in TBT. ( I liquidated most of everything before the crash last week). I am suggesting the following:  Buy Dec 40 calls, Sell Dec. 50 calls, and sell Dec 45 puts. The calls are 20 contracts each, and the puts are 15 contracts. This !0.00 spread is at a cost of about zero, without taking into consideration the margin requirement. Do you have a better strategy? Thanks!


  19. Phil
    I believe oil will track its way back to $85, and then continue upwards from there. I would like to do an "artificial buy/write" on an ETF that follows this pricing, or the effect on companies in this sector. I have been looking at XLE and OIH. I do, however, have a concern for OIH as it contains a lot of RIG and HAL, which might be dangerous considering their exposure to the gulf oil spill. Do you like my hypothesis re oil pricing, and could you suggest a play on it? Thanks!


  20. Hi guys!

    You’re welcome Nolsrul!  I know I sounded like a broken record since late March but I learned a long time ago it’s best to go with my gut on these things.  Newer members probably don’t realize I’m generally an optimist and much prefer being a bull but, above all, I’m a realist and I learned over the years that there’s a lot of value in preserving capital – enough so that it’s better to sit out and "miss" some profit opportunities, rather than be greedy and try to play a move that might be past its prime…

    Cap – "I may not agree with Phil 100% on politics"  What would that percentage be?   8-)

    Recovery/Cwan – Check out this chart.  The volume on the S&P during the sell-off and recovery was so little as to not be visible on this chart (5-day view).  The big volume moves came (1 day view) as we bottomed out on Friday indicating I’m not the only one who sees 1,100 as a buying opportunity.  The Dow has a very different pattern and, as we know, P&G (a Dow component) was one of the key stocks used to drop the market. 

    At the same time as the very easy to manipulate  Dow was being wiped out (causing others to follow, of course), the Yen was jammed down to what I think was a record intra-day drop.  That boosted the dollar and exaggerated the downward move, especially in commodities which, of course, triggered sell-offs in those sectors.

    So, what can a suspicious mind make of all this?  Well, perhaps "THEY" have driven the market relentlessly higher with a lot of HFT but "THEY" don’t own much actual stock.  Now "THEY" want to buy but not at 1,200 so "THEY" pick a time (in the middle of the quarter when it won’t affect their locked investors) when there is fear and uncertainty and crash the market down 10%, letting them fill their shopping cart while the retail investors panic out.  Once "THEY" have their fill of stocks, they can sound the all clear and run the HFTs again and all the poor retail investor and thier pathetic mutual funds will have to scramble to play catch up while the funds, since "THEY" bought at a 10% discount, will be able to tell sideliners that they beat the S&P by 10% this quarter as it recovers to a flatline by the end of June.  

    JPM/Kinki – They are the co-leader of the Gang of 12 and, with GS trying to keep things on the DL, I’d say JPM is calling the shots right now. 

    JPM/Nolsrul – That thing is pure chaos.  It’s amazing anyone is willing to buy a stock after a demonstration like that.  Valuations are clearly total BS if they can drop that much in a day.  If values are real then there would be a significant number of people with standing order to buy PG at a 20% discount that a fall below that level wouldn’t be possible.  Not to mention the hundreds of other stocks that broke those levels.  This market is all traders and no investors – very sad actually…

    GILD/Pyern - If you get out of the box, the bottom line is you owe, for example 10 contracts at $6.50 each and we can assume you have 50% margin so $6,500 owed and $22,500 in margin (and $1,500 cash in pocket).  So we’re dealing with a $5,000 loss to get back and you are bullish on GILD.  Well you can be bullish on GILD in other ways.  You can sell 20 Aug $39 calls for $2.50 ($5,000) and buy 20 Jan $30 calls for $10 ($20K) which should be less than your margin that would disappear.  If GILD holds $39 through Aug, the most you can lose is $2K, assuming you cashed in the spread at net $9.  Realistically, you should be able to roll the callers along to a vertical and make a small profit if GILD recovers.  If GILD falls lower, you need to want to roll to the 2012 $30s for + $2 and be in the GILD premium selling business for another 16 months.  

    You can also run that trade 10 Leaps, 10 short $39 calls at $2.50 and 10 short June $40 puts at $2.60 so a quicker recovery solves your problem faster.  Another fun thing to do is split the $6.50 putter to the June $41 puts ($3.30) and the June $36 calls ($3.20) and anything between $34.50 and $42.50 is going to be an improvement.  I believe that will also considerably lower your margin requirement, possibly by 75%.  Let’s say GILD finishes at $40 in June and you owe $4 to the caller and $1 to the putter (anything in between is $5) that’s knocked off 20% of your debt and 1/3 of your loss in a month in the "safest" possible fashion but, as with all "safe" strategies, your ultimate improvement is limited as well. 

    On the whole, I think (assuming I’m right about the 75% reduction in margin) I’d go for a 2x roll to the June $40 puts ($2.60) and sell 1x the $37 calls ($2.50), which will really annoy you if GLD bounce back but you can always buy some Jan calls to cover (since you like GLD) if they start heading higher (anything with a close delta, like the Jan $35 calls, would stop the upside bleeding.  Ideally, GLD stages a minor recovery to $40 and you can then split up the remaining $3 you owe into a wider short strangle. 

    Of course, you could go way outside the box and forget GILD altogether and just sell the GOOG June $430 puts for $7.  Margin should be the same and unless GOOG drops another 10% – you’re done in a month…

    Intentions/Gel – Thanks Gel, I’m so relieved you took some of my warnings to heart.  Yes, when your account has 8 figures then you are one of the people who may get a reversal.  I wonder if anyone with a $100K Fidelity acount got that message?  In some of the hedge funds, there are guys whose entire job this weekend is going over those reports and filing papers to reverse anything that was detrimental to them on Thursday.  This is one of the advantages of pooled money, you can afford to have guys who do this sort of thing…

    Processing/RMM – That’s why I said it was best to go to cash.  When a big event is coming, not many people can move that quickly and, of course, you never know when your trading platform will crash or grind to a halt.  Any retail investor who thinks they are going to dance around a market collapse is just fooling themselves.  If you are not hedged to near neutral or in cash, you are seriously at risk.  As to spread management, check out Sage’s new post and, of course, go back and read our Buy Lists and watch lists as we make very detailed adjustments each period and you can follow those positions along by seeing where the charts are at each posting.  One of your big problems is you adjust way too much, when you sell options you need to WAIT for the premiums to expire – the only reson you should be making an adjustment earlier than the Wednesday before expiration is because you are grossly off target and even that doesn’t mean you should be adjusting based on Thursday’s action yet.  As Sage points out, you need to have 8-12 positions plus hedges to guard against a move against you and that’s that if you are under $1M.  At $1M I think only double that at most.

    Historical/Jdb – I don’t know about bid/ask but you can see the sale prices on TOS or Investools.

    Losing faith/Kinki – I think I have little faith in either at this point but I do have faith in my fundamentals at least.

    Cramer/Gel – He just gets worse and worse.  I think the more he gets away with this stuff, the bolder he gets.

    10x/AC – Risky but probably?  No such thing really, the only way you are offered 10x returns is because there is substantial risk.  I still think my #1 play in that category would be the C 2012 $2.50/5 spread at $1.15, selling the $4 puts for $1.15.  That’s a free $2.50 with the downside risk (if you are trying to make $1M) of owning 400,000 shars of C at $4 ($1.6M), which would really suck if they went BK!   I love this play with 100 contracts which would be about $4K net margin on the put side and $7,550 on the call side to make $25,000. 

    Kent/Diamond – I don’t think that’s going to shock anyone..

    TBT/Gel – The aid package for Greece is approved.  The question is will it be enough to calm the markets.  I’ll get back to you later – have to go to my daughter’s soccer game now and we’ll see if we have any evening announcements to goose Asia by them.


  21. BTW, any thoughts on the effect of the recent news that there might be civil and criminal probes launched at JPM for manipulating the silver market?  Maybe a convergence of the Silver-to-Gold ratio?


  22. Phil/TBT
    Thanks…. no rush, as I will  wait until the markets open to see the support level before I place an order. The currency markets have been open for an hour, and the Euro is showing support.  I believe this will be a short term recovery in the Euro, as the fundamentals point to a weakening EU currency.  It will be a slow drop over the next six months, IMO, and then next year I predict parity with the Dollar. Euroland has just too many debt problems within their membership, and the economy will lag our stats. I am going to look at some nice speads later in the week on the EUO, that coincides with my sentiments in this regard – probably Jan strikes.


  23. cwan; agree things happened so fast; you could not react quickly enough.  Add to that one system freezing up; other web sites unresponsive; and one account of mine showing a -$340 million change for the day (completely wrong and absurd , of course), that I would not have been able to get an order filled if I wanted to.
     
    Later in the day, I was able to trade in and out of things and take advantage of volatile moves; but no crazy big money plays alas.
     
     
    aclend … I can tell you how to turn $1 million into $100,000; not sure of the other way around; particularly a "guaranteed way".  If you find one, let us know.   :grin:


  24. Phil, I think that percentage would be around 1.7% or something like that ….  probably higher than you thought !   :grin:


  25. Conspiracy theories … Phil thats a good one.  Could be just algo’s run amok and chasing each other to be faster to get out of
     
    Could be financial terrorism from China, Russia or a man made disaster somehow emanating from Af-Pak or Saudi, Iran, or Yemen.


  26. I’ve talked about many times during this run up that the retail investor was gone and not coming back anytime soon, no matter what type of cheerleading comes thru the media.
     
    Well, if retail wasn’t gonna chase this rally (and the volumes and fund flows tell you they haven’t), they sure as hell aren’t going to chase it now !  Talk about a confidence destroyer to get "investors" to come back into the casino to play more roulette against the house (GS, JPM).


  27. should be a great day for tbt euro keeps gaining like this 


  28. samz… are you playing the EUR ? Im dabbling but not sure of the commitment of the direction.


  29. Cap
    I agree totally with you. The retail guy is still in shock from the drop in his 401K. Last weeks maniacal market gyrations destroyed any interest in the market for some time to come. This is helping the fixed income market.


  30.  Wow this plan is much more aggressive then anything i thought the Euro zone could put together this weekend. 
    1. 724 billion dollar combined aid fund, with loans and loan garntees.
    2. 76 billion under existing lending program.
    3. IMF agrees to lend 280 billion + in separately.
    4. 30 billion IMF aid to greece approved. 
    5. EU will buy gov bonds.
    Thats a ton of money. Go TBT.


  31. Gel -
    no – I have been too uncertain of the moves to get involved – was worried about violent move back for euro to get involved. – also the flight in and out of the dollar


  32. samz… Thanks!   I have been selling the USD against the CAD and AUD. Looks like we might have a weaker dollar tomorrow, at least that is what the charts show. Should be good for equities and TBT, I hope. 


  33. Wowie!  Futures up about 2% so far on the Super EU Money Mania game.  It’s like they have one of those boxes filled with money and they turn on the fan and all the PIIGS get inside and jump up and down and grab it – all very excting!

    The IMF approves a three-year €30B ($38B) loan for Greece, its all-time biggest single-country commitment. European finance ministers cleared their part of a €110B package late last week; now skeptical markets look to see whether Greece can cut its deficit this year to 8.1% of GDP, from a record 13.6%.

    With Asian markets set to open, the EU is scrambling against a self-imposed deadline to roll out a coordinated defense plan for the euro that reportedly comes to €560B total ($724B). Updated 8:22 p.m.: Live press conference has begun, a few hours late. Reuters reports a €500B package, a mix of loans and loan guarantees. The Nikkei opened flat to slightly higher (+0.3%) before news began to break. Euro +1% against the dollar.  See – what did I say at 5?  "We’ll see if we have any evening announcements to goose Asia."  It’s not that I’m good at guessing this stuff - It’s a scam and I know the scam, that’s all… 

    More news from Brussels as EU’s Ollie Rehn says the European Central Bank will take the step of buying government bonds, previously considered the "nuclear option" of the euro defense measures under consideration. Euro +0.5% against dollar. (MW; earlier) Updated 9:25 p.m.: WSJ reports the Fed has reopened a credit line to send dollars to Europe.

    So put together, the total is €750B ($966B) of shock and awe to save the eurozone – €440B in loans from the nations, €60B from EU emergency funds, and €250B from the IMF – but it better be enough, as signals from the U.K. and from German elections suggest no future help is forthcoming. Euro +1.3% against the dollar; S&P 500 futures +2.6%.

    TBT/Gel – I do stand by my theory that any move in TBT below $45 is not going to last long.  $42.50 was our old floor but the beginning of tightening by some Central Banks got me to shift up.  Dec is far less liquid than Jan so I prefer Jan as you may have to roll in Sept if off target.  Your spread works, of course but I’d rather have more of the Jan $35/45 bull call spread at $5.10 and sell the $40 puts at $4.50 and you are in the $10 spread at net .50 and TBT can finish $5 below your (about) $42.50 break even and still come out about even.  That next $5, down to $37.50 is strong enough that I would be happy to commit double to the lower position.  

    Another, even more conservative play on TBT (have I mentioned I like them lately?) is the Jan $35/40 bull call spread at $3 and, frankly, making $2 on $3 is pretty good money for 8 months so you can stop there.  If you want to spice it up, you can sell the $33 puts for $2 and you are in for net $1 with $4 of upside and you are 15% above break even now and 100% in the money NOW.

    Oil/Gel – I’m not sure we have that kind of recovery yet.  Look at VLO – that’s the real state of our recovery, a slow, steady chop upwards.   ERX combines the two you are looking at so a little less risky than OIH (although I think that group will do well now) and I like the ultra’s high premiums because you can sll the Jan $22.80 puts (33% lower, oil at about $65) for $1.60 and use that to offset the $27.80/33.80 bull call spread at $3.10 for net $1.60 on the $6 spread.  Pretty much you’re paying for OIH to recover slightly and oil to hold $75 through the end of the year for a nice 275% upside.

    Apparently, Transocean (RIG) has made a $270M profit from insurance payouts on the oil rig that exploded in the Gulf of Mexico. The $560M insurance policy Transocean took out on the Deepwater Horizon rig was greater than the value of the rig itself.

    The Gulf of Mexico oil spill isn’t BP’s (BP) first safety lapse. The company had a refinery blow up in 2005 and an oil pipeline rupture in 2006. Federal officials and industry analysts say BP continues to lag its rivals on safety matters, despite repeated promises to reform.

    "I wouldn’t say it’s failed yet," says a BP (BP) exec, but the containment dome meant to stem part of the oil leak had to be removed after it became encased in ice crystals. Execs are considering whether to give the dome another try, or look for second-best options.

    JPM/Kinki – One can only hope.  Silver is a total joke market.  Not that the other commodities aren’t but silver is just way too easy to push around. 

    Federal officials have reportedly launched criminal and civil investigations into whether JPMorgan (JPM) acted improperly to depress the price of silver.

    Euro/Gel – Looks like they’ll test $1.30 tomorrow.  Big pass/fail exam.

    Still waiting for details on the euro stabilization fund. Spanish Economy Minister Elena Salgado says "We are going to defend the euro. We think we have a duty for more stability for our currency. We will do whatever is necessary.”

    1.7%/Cap – I shall endeavor to get you to 2% this year!

    It’s a lose-lose situation for millions of underwater homeowners who are learning that walking away from their mortgages could result in tax bills as high as tens of thousands of dollars.


  34. The focus is on Europe right now, but the debt spotlight could move to the U.S. soon enough: At 92.6% of projected 2010 GDP, U.S. government debt is now higher than three (Portugal, Ireland, Spain) out of the five PIIGS.

    “When the markets re-open Monday, we will have in place a mechanism to defend the euro,” says France’s Nicolas Sarkozy. “If you don’t think that’s significant, you haven’t been to many EU summits.”

    Sen. Shelby says financial reform legislation must include an overhaul of Fannie (FNM) and Freddie (FRE). "For decades, these multi-trillion dollar institutions leveraged the implicit backing of the American taxpayer to encourage mortgage lending to people who could not afford to repay the loans… [until] these ticking time bombs exploded, saddling taxpayers with hundreds of billions of dollars of debt."

    Banks fail in Florida, Minnesota, Arizona and California, at an estimated combined cost to the Deposit Insurance Fund of $213.7M; sixty-eight FDIC-insured institutions have failed in 2010, with the year’s halfway point weeks away.

    At a minimum, Thursday’s market plunge showed how poorly regulatory oversight has kept pace with the changing nature of trading. In response, sources say the SEC is considering regulatory changes to slow stock trading when prices are plummeting.

    The SEC is launching a probe of "unethical" behavior in the $2.8T municipal securities market that will attempt to bring improved disclosure by issuers and other investor-protection regulations.

    The robo-market blew a fuse and must be re-wired, Colin Barr writes. Among the suggestions for minimizing abusive automated trading: widen out bid-ask spreads, slap a fee on traders who cancel trades, and change the practice of paying traders for providing liquidity. "We need to get all these fast-trading jokers out of here."

    Trust may be the biggest casualty in the market meltdown, Yves Smith warns. "The idea that the pros could trade [yesterday] while the little guy was shut out reinforces the perception that the markets are treacherous and the odds are stacked in favor of the big players (even though we all understand that, it isn’t supposed to be this blatant)."

    In its annual report released late yesterday, Moody’s (MCO) disclosed it received a Wells Notice from the SEC in March, and may face enforcement action for misleading regulators in a 2007 license application to remain an officially recognized credit-rating firm.

    David Rosenberg has 10 things on his worry list. Perhaps he could have included uncertainty over Washington’s "war" against Wall Street.


  35. Phil/TBT
    Many thanks, Phil. I join you in your opinion favoring the Jan expirations. That’s a great play. I can never thank you enough for what I have gained educationally as well as monitarily. Here it is late Sunday evening and I am able to get world class advice, just by asking for it. I feel like I am staying in a 5 star hotel, and room service is just a telephone call away!


  36. Futures up almost 3% now. Could be a big squeeze at open tomorrow, with people getting caught up on the wrong side with the Thurs/Fri action.
    Euro getting to 1.3 now.


  37. Short guys crying.
    http://youtu.be/ee925OTFBCA 


  38. Gel/5 star  Now where’s my chicken fingers and cherry coke I ordered an hour ago…..  :)


  39.  GEL, i totally agree with your sentiments – the shenannigan’s over the last week makes a joke/mockery of the enitre market/investing enterprise.  It is starting to feel like a casino with Obama as the pit boss who randomly decides if he’s going to enforce the house rules.


  40. Phil,
    Thanks for the arsenal of tactics on adjusting short puts. I’m digesting the various options to see what would work best for me… Hopefully, the Euro-rescue will make it all moot… :-)
    The GOOG June $430 puts though will have a margin requirement that is almost 4x the original margin… Fidelity’s margin for 10x GILD $45 puts is $16,300 while for 10x GOOG puts is $67,000.